Oct. 25 (Bloomberg) -- Tim Pawlenty has got to regret what
he calls “the now-infamous ‘snout out of the trough’ line.” Not
that he’ll admit it.

The former governor of Minnesota and failed Republican
presidential candidate is sitting in a Washington corner office
still decorated with the grip-and-grin photographs of his
predecessor. His black travel roller bag rests nearby. He’s a
man in transition, discussing his move through the revolving
door from public service to corporate influence, Bloomberg
Businessweek reports in its Oct. 29 issue.

Seeking his party’s nomination last year, Pawlenty tried to
shed a competent-yet-bland conservative profile. He engaged in
Tea Party-lite attacks on Federal Reserve Chairman Ben S.
Bernanke. He opposed raising the national debt ceiling, even if
that meant a government default and possible economic calamity.
And he went on CNN, CNBC, and Fox to deliver “a truth message”
to Wall Street: “Get your snout out of the trough.”

Today that’s a tad awkward. As chief executive officer of
the Financial Services Roundtable, he now works on behalf of
JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp.,
Wells Fargo & Co., and the 96 other members of the group, which
has 50 employees and spent $7.7 million on lobbying in 2011,
according to the nonpartisan Center for Responsive Politics.

‘Orderly Wind-Down’

A look of annoyance briefly clouds Pawlenty’s face when
this is noted. No, he says, he sees no inconsistency. Taxpayer-funded bailouts -- the trough he railed against -- are history:
“We have a mechanism in place for the orderly wind-down of
systematically important institutions.” Wall Street itself, he
adds, will have to pay for any future bailouts.

One could quibble that the Dodd-Frank financial-overhaul
law, which created the wind-down authority Pawlenty praises, was
enacted, over Republican resistance, in 2010 -- a full year
before his anti-Wall Street tirade.

Setting aside the chronology, suffice it to say that, as a
candidate seeking populist credibility, Pawlenty beat up on big
bankers. Today he works for them.

“The governor,” as his subordinates call him, wants to look
forward. A central element of his new job is shifting attention
away from the 2008 mess, which Wall Street helped cause, and
toward the imperfections of the legislative response.

He compares the crisis to an “avalanche,” an act of nature.

Restoring Credibility

“As that gets increasingly in the rearview mirror,” he told
reporters on Sept. 20, when the roundtable announced his
appointment, “there is progress that’s been made in terms of
restoring the regulation and credibility of the financial-services industry in this country, but more work needs to be
done.”

The main piece of work ahead concerns implementing Dodd-Frank, a complicated statute with two core purposes. First, it
empowers the government to put a failing megabank into
supervised receivership. The idea is to avoid a repeat of the
chaotic September 2008 collapse of Lehman Brothers, which set
off global panic. That’s the part Pawlenty embraces.

Dodd-Frank also increases day-to-day regulation in an
effort to prevent traumatic bank collapses in the first place.
That part, Pawlenty says, requires “refinement.”

Now, 27 months after its enactment, most of the law has yet
to take effect -- in large part because the financial industry
has been so busy working to “refine” it by means of relentless
lobbying and filing lawsuits in federal court.

‘Game for Banks’

Keeping attention focused on purportedly excessive
regulation “is the whole game for the banks,” says Jeff
Connaughton, a former corporate lobbyist and Democratic
congressional aide.

“Forget that greedy bankers took us to the brink of a
second Great Depression. ‘What we need to worry about is
overregulation’--that’s the industry message,” Connaughton says.
“Why anyone would believe them is beyond me.”

That’s where Pawlenty comes in. His anti-Wall Street
flourishes as a candidate aside, he’s poised to become a leading
purveyor of that message. Based on what the roundtable and its
allies have accomplished since Dodd-Frank was approved, there’s
every reason to think he’ll succeed.

‘Royal Triangle’

Pawlenty, 51, never made a very convincing pitchfork
scourge. Sure, he took the podium at a Tea Party Patriots rally
in Phoenix in February 2011 to condemn “the royal triangle of
greed: big government, big unions, and big bailed-out
businesses.”

And the following month he reassured Iowa’s Faith & Freedom
Coalition that “the Constitution was designed to protect people
of faith from government, not to protect government from people
of faith.”

Behind the rhetoric, though, he was someone East Coast
bankers and other money people trusted. Of the $5.2 million he
raised for his short-lived presidential run, more than
$2 million, or 39 percent, came from donors in securities,
banking, investment, and insurance, according to the Center for
Responsive Politics.

In March, the Financial Services Roundtable announced that
its chief for the past dozen years, a Republican former
congressman from Texas named Steven Bartlett, would be retiring
at the age of 65.

‘New Captain’

“It’s time for a new captain,” Bartlett said.

The job pays well -- $1.8 million in 2010, the most recent
year for which tax records are available. The FSR considered
dozens of candidates, including former Senator Blanche Lincoln,
an Arkansas Democrat who’s now a lobbyist with a corporate law
firm, and former Representative Ken Bentsen Jr., a Texas
Democrat who works for another trade group in Washington.
Although he lacks experience in financial services, Pawlenty
represented the biggest name on the list.

As Minnesota governor from 2003 to 2011, Pawlenty won
Republican praise for cutting spending and holding the line on
taxes. Before that, he served in the state legislature for a
decade, four of those years as House majority leader.

He was a finalist in the 2008 John McCain vice-presidential
sweepstakes, losing out to Sarah Palin. This year, after
Pawlenty elicited little enthusiasm in the run-up to the
Republican primaries, Mitt Romney considered him as a running
mate. Once again, the Minnesotan was passed over.

‘Full Run’

Pawlenty might have had a shot at a second-tier Cabinet
post in a Romney administration, or he could have gone home to
run for the U.S. Senate. He decided instead to sample the
private sector. His most recent salary as governor was $121,000.
He and his wife, Mary, have a daughter in college, another in
high school, and no family fortune.

The roundtable won’t reveal his starting pay, yet there’s
no reason to think it’s less than the almost $2 million Bartlett
collected. After 18 years in elective office and no indication
that he has national political appeal, Pawlenty says of public
life: “I’ve had my full run.”

FSR is part of a collaborative, overlapping network of
financial trade groups that includes the American Bankers
Association and more specialized outfits, such as the Mortgage
Bankers Association, Securities Industry and Financial Markets
Association, and International Swaps and Derivatives
Association.

Lobbying Legions

Broader-based organizations such as the U.S. Chamber of
Commerce and Business Roundtable sometimes join the fray. And
major banks such as JPMorgan and the Goldman Sachs Group Inc.
each have their own dedicated Washington shops.

The legions of financial influence are large. Last year,
finance, insurance, and real estate interests spent $479 million
on lobbying.

In the wake of the 2008 crisis, the FSR gained a quirky
pop-cultural prominence as a result of the starring role its
lead hands-on operative, Scott Talbott, played in “Inside
Job,” which won the Academy Award for documentaries in 2011.

Serving as the industry’s Washington face, Talbott gave a
memorably insouciant performance. When filmmaker Charles
Ferguson asked him, “Are you comfortable with the level of
compensation in the financial-services industry?” Talbott
answered, “If they’ve earned it, then, yes, I am.”

“Do you think they’ve earned it?”

“I think they’ve earned it.”

‘Top Lobbyist’

Talbott lists his “Inside Job” credit on his FSR website
bio page, along with “top lobbyist” awards for 2009 and 2011
from The Hill newspaper.

Unfailingly friendly, he also serves as the group’s media
gatekeeper. He agrees to make Pawlenty available for an
interview on the condition that the new CEO won’t answer
detailed policy questions because he hasn’t had enough time to
study his new portfolio.

Washington veterans predict that once he’s up to speed,
Pawlenty will make an effective front man, especially if Romney
defeats President Barack Obama on Nov. 6 and Republicans retain
control of the House. By all accounts, he’s smart and
industrious.

“He may not be an expert, but I have no doubt he sincerely
agrees with the industry’s antiregulatory philosophy,” says
former Democratic Senator Ted Kaufman of Delaware. “The guys in
this industry don’t give an inch. There’s no sense of shame, and
they have the money to just keep fighting and fighting until the
other side goes away.”

Kaufman speaks from experience. The longtime chief of staff
to Joe Biden, he was appointed to serve the two remaining years
of his boss’s Senate term after Biden became vice president in
January 2009.

Quixotic Campaign

Kaufman helped lead a quixotic campaign in 2010 for
legislation overhauling Wall Street that would have put strict
caps on the size of big banks and the risky loans they could
make.

“We failed,” he concludes. “The other side was too strong
and could buy too much support in Congress.”

In the run-up to the 2012 elections, donors from finance,
insurance, and real estate gave $465 million to candidates, more
than any other industry grouping tracked by the Center for
Responsive Politics. The contributions went 2-1 to Republicans
over Democrats.

“As a result of the failure to make Dodd-Frank tough
enough, we still have the too-big-to-fail problem,” Kaufman
argues.

Financial Giants

The largest financial giants are larger than ever. The top
50 U.S. bank holding companies control assets of $15 trillion, a
500 percent increase since 1991, according to the Federal
Reserve Bank of New York.

The share of those assets controlled by the 10 largest
firms has more than doubled over the past two decades, from less
than 30 percent to more than 60 percent. If No. 1 JPMorgan or
No. 2 Bank of America were to falter during a future period of
market anxiety, the government would be forced to prop it up
rather than risk financial Armageddon, Kaufman predicts.

Pawlenty disagrees. He argues that Dodd-Frank, as passed,
did enough to address the too-big-to-fail problem. The law
required large banks to draft “living wills,” or contingency
plans anticipating how they would be liquidated in a crisis. And
it created a financial stability council charged with monitoring
excessive risk-taking.

Wall Street, according to Pawlenty, has been sufficiently
weaned from the bailout trough. We’ll only ever know whether the
Dodd-Frank provisions will really work when another institution
as large and interconnected as Lehman threatens to go over the
cliff.

Industry Changes

The more immediate question is whether industry
“refinements” of the law will lessen or increase the likelihood
that another leviathan ends up teetering on the edge. What
Pawlenty, Talbott, and their colleagues call refinement,
skeptics see as a strategic neutering of financial reform.

“The bottom line,” says Dennis Kelleher, head of a pro-regulatory advocacy group called Better Markets, “is that Wall
Street, their lobbyists, and their Republican friends are
fighting Dodd-Frank tooth and nail.”

The many unresolved elements of the 848-page law include
the Volcker Rule, designed to restrict “proprietary” securities
trading that major banks do for their own accounts, and a
thicket of rules intended to restrain and make more transparent
the hundreds of billions of dollars of esoteric, poorly
understood derivative transactions that contributed to the 2008
debacle.

Missed Deadlines

Overall, as of Oct. 1, agency regulators had missed
63 percent of 237 deadlines Dodd-Frank set for writing final
rules, according to the law firm Davis Polk & Wardwell. An
additional 161 deadlines haven’t even come up on the calendar
yet.

“It’s a mess,” says Kelleher, a blunt former corporate
lawyer and Democratic congressional staff member whose
organization is funded by an Atlanta-based hedge fund manager
named Michael Masters.

The Volcker Rule has been significantly watered down and is
nowhere near taking effect, Kelleher says: “The biggest reason
the Federal Reserve, the Securities and Exchange Commission, and
the other agencies haven’t completed their work is industry
lobbying.”

Not so, says Pawlenty: “These are large, complex issues
that it’s going to take some time to work through.”

Volcker Rule

By “work through,” he means he’d prefer to see the Volcker
Rule replaced with “a less burdensome legislative alternative,”
as the FSR and Securities Industry and Financial Markets
Association put it in a joint Sept. 7 letter to Representative
Spencer Bachus, an Alabama Republican who is chairman of the
House Financial Services Committee.

The FSR estimates that the Volcker Rule alone “will
increase borrowing costs by up to $43 billion a year,” while
Dodd-Frank as a whole will inflict a 2.7 percent hit on gross
domestic product.

“The cumulative weight of the Dodd-Frank act will
negatively impact the economy and consumers,” the group says on
its website. One alternative the FSR prefers would be to rely on
more stringent global capital requirements known as Basel III;
the problem with that idea is that the Basel III initiative is
also bogged down by industry lobbying and international
bickering.

Agency Visits

Once a statute like Dodd-Frank is on the books, lobbying
modes shift. Instead of schmooze sessions on Capitol Hill
lubricated by campaign fundraisers, influence peddling takes the
form of densely written commentary from the affected business
interests and grueling in-person visits to rule-writing
agencies.

Ninety-three percent of the thousands of lobbying meetings
at agency offices involve industry representatives such as the
FSR, according to Kimberly Krawiec, a law professor at Duke
University who has analyzed a sampling of regulatory guest logs.
Only 7 percent involve public interest groups, labor unions,
lawmakers, and others.

On Oct. 2, the FSR wrote the Commodity Futures Trading
Commission with an “urgent request” that it “delay the
effectiveness of all rules” to be issued under Title VII of
Dodd-Frank, which is supposed to move the previously unregulated
derivatives market into a world of public exchanges and
government supervision.

‘Weary Travelers’

“We recognize that asking the Commission to abate this
process is much like asking weary travelers, after a long and
arduous journey, to pause just as their destination comes into
view,” the FSR continued. “But imagine those travelers at the
top of the hill, on a train that is approaching a station where
the tracks are not yet finished and the risk of derailment is
high.”

In less elegiac prose, the comment went on to request
additional guidance on such highly technical matters as which
businesses would have to register as swap dealers, how new rules
would apply to non-U.S. affiliates, and “whether foreign
exchange forwards and foreign exchange swaps will be exempt from
the definition of swaps.”

The CFTC went ahead on Oct. 12 and put in place
requirements that companies begin tallying derivative trades to
determine whether they will be subject to Dodd-Frank’s most
stringent standards for capital, collateral, and trading.

“The days of opaque swaps markets are ending,” CFTC
Chairman Gary Gensler said in an Oct. 10 speech at George
Washington University.

CFTC Fight

Republicans in Congress have vowed to fight the CFTC rules.

“It’s my view that CFTC Chairman Gary Gensler is using his
newfound power” under Dodd-Frank “to unilaterally impose his
will on financial markets,” Senator Pat Roberts of Kansas, a
senior member of his party on the Senate Agriculture Committee,
which oversees the agency, said in a written statement.

Roberts called for hearings to examine the CFTC’s latest
moves. Gensler has maintained that he’s using his authority
judiciously.

On Constitution Avenue, between Capitol Hill and most of
the regulatory agencies, sits the local U.S. courthouse for
Washington, where businesses have another avenue for “refining”
regulation: the lawsuit.

“We have a system that has checks and balances in it for a
reason,” says Pawlenty. “You can’t have a certain set of
decision-makers who go beyond what the law allows.”

So far, at least a half-dozen such suits have challenged
the way the SEC, CFTC, and other agencies are putting Dodd-Frank
into effect.

Constitutional Challenge

In one case, a Texas bank backed by the conservative
Competitive Enterprise Institute is challenging the
constitutionality of the new Consumer Financial Protection
Bureau. That case and most of the others are pending, and early
results haven’t favored the government.

Several judges have endorsed industry contentions that
agencies didn’t give sufficient attention to whether the costs
of regulation outweigh the demonstrable benefits.

In the most recent of these decisions, U.S. District Judge
Robert Wilkins, an Obama appointee, ruled on Sept. 28 that when,
under Dodd-Frank, the CFTC adopted position limits on
speculation in energy, grain, and metals markets, the agency had
failed to show that the restrictions were “necessary and
appropriate.”

The CFTC defeat, which the agency is likely to appeal,
followed a July 2011 ruling by the appellate court in the same
building which, at the behest of the Business Roundtable, struck
down an SEC rule that would have allowed major shareholders to
challenge corporate leaders by placing dissident board
candidates on a company ballot.

Industry Challenges

In an implicit invitation for more industry challenges, the
appellate court made broad statements about the need for
regulators to analyze the economic costs of their rules. The SEC
didn’t appeal.

Kelleher says the prospect of Dodd-Frank getting tied up in
litigation -- with challenges to the Volcker Rule and other
provisions expected -- worries him more than any other obstacle
to the law.

“The problem with the cost-benefit analysis the industry is
pushing and the courts seem to be embracing,” he says, “is that
Wall Street can always exaggerate the costs, while the benefit
of preventing another Great Depression is almost impossible to
measure.”

Putting this point differently, former Senator Kaufman
contends that Dodd-Frank oversight raises regulatory costs for
large banks for a reason.

Political Will

“We could have done this in a more straightforward way by
capping their size or breaking them up, but there wasn’t the
political will,” he says. If the big banks want to avoid the
Dodd-Frank regulatory tax, he says, they can shed assets, become
smaller, and pose less of a threat to the financial system at
large.

In Pawlenty’s view, the glacial rate at which Dodd-Frank’s
rules have been implemented is evidence that the process is
working properly.

Dodd-Frank, he says, “happened fairly suddenly, and it has
enormous consequences and it covers a wide variety of issues. So
it’s reasonable that it’s going to take a little time for the
dust to settle.”

Pawlenty prescribes patience.

“I look at this not only as what’s going to happen over the
next six months,” he says, “but what’s going to happen over the
next six years.”